Will focus on capacity expansion, customer needs: Syngene

Syngene International reported strong set of numbers for the quarter ended September 30. The service arm of Biocon Ltd posted a 31 percent increase in net profit to Rs 52.29 crore aided by capacity expansion in its manufacturing services. Syngene’s revenue grew 28 percent to Rs 261 crore and earnings before interest, tax, depreciation and amortization (EBITDA) rose 35 percent to Rs 85.8 crore. This was the company’s first earnings announcement post its initial public offer (IPO) in August this year. Peter Bains, Director & Chief Executive Officer (CEO) of the company told CNBC-TV18 that Syngene is targeting USD 250 million sales by FY18. Bains is confident of better results in the second half of the year. Growing client base and expanding capacity will aid growth in future, he said. The company has expanded client base to over 200. The ongoing capacity expansion plans will meet the growing customer demand, Bains said. The company has cleared four US Food and Drug Administration audits. More US FDA audits are expected, Bains said. Below is the transcript of Peter Bains’ interview with Latha Venkatesh and Sonia Shenoy on CNBC-TV18.Latha: It is a very good performance both at the top line and at the bottom line. Can you tell us how the quarter panned out?A: The quarter has been very strong. We have seen revenues grow at 28 percent. We have seen earnings before interest, taxes, depreciation and amortisation (EBITDA) grow at 30 percent and we have seen profit after tax (PAT) grow at 31 percent. So, this is a comprehensively strong set of financial numbers. Our margins at EBITDA have been sustained at the 33 percent level and the PAT margin has risen slightly to 20 percent. We are very satisfied with this robust set of financials and perhaps even more pleasing to us is that we have seen the growth come from across all our verticals. We have seen growth in our dedicated centres business, our discovery services and our development and manufacturing services. So, growth has been multi-factoral. And that is perhaps most pleasing too.Sonia: Do you think you can replicate this growth of 30 percent that you have seen in your revenues in the first half of the year in the second half as well?A: We do not give quantitative guidance as such. We are committed to a target of USD 250 million of sales in fiscal 2018 and we remain committed and very confident of that. Having said that, I think we are half way through the year and we have good visibility for the rest of the year. We have a strong order book again across all our key verticals and I think we look to the second half of the year with high confidence that we can deliver good strong growth against the comparable period last year.Latha: Can you tell us whether you have had more client engagements? Any numbers on that front in terms of the number of clients you are servicing now?A: I think the big picture there is that we have grown our client base over the last five years from just over a 100 now to just over 200. And again, in terms of client numbers, the best way to look at it is on an annual basis and we will be updating the client engagement numbers at the end of the year. But we are continuing to engage new clients as well as grow existing clients all the time.Latha: Would that require capacity expansion? Have you some capacity expansion plans on the anvil?A: Yes, we have quite a comprehensive growth capital expenditure (Capex) investment programme coming forward over the next three to four years where we will see substantial capacity enhancement. It is ongoing right now. We will see that across again, many of the verticals of our business expanding capacity in chemistry, biology, in biologics manufacturing, in formulation development as well as introducing new capabilities, exciting areas like oligonucleotides, anti-body drug conjugates. So, we have an ongoing programme of capacity expansion to meet the growing demands of our customers and also capability extension in order to build in new capabilities that are required in the dynamic changes going on in the discovery development and manufacturing readers that we serve.Sonia: So, over the next couple of years, how much do you think your operational profile could improve? Currently, your margins are somewhere around 30-32 percent, but given that you are entering into new areas and new capabilities, do you think you could see a significant upmove in your operational performance in the years to come?A: What we have seen in the last five years is that while we have been quite dynamic in changing operational capabilities and capacities, we have seen that we have been able to maintain margins within a fairly narrow range. So, over the last five years, we have maintained EBITDA margin in the low-30s to the mid-30s. In terms of PAT margins, we have maintained that in the high teens. We are very confident that as we grow our business, as we extend capacities and extend capabilities, that we will be able to sustain this level of margins within those ranges.Latha: We understand a couple of US Food and Drug Administration (FDA) audits were done recently. Are any more on the anvil? How many? A: I think that there will be more FDA Audits that will come our way in the coming months and years ahead. We cannot predict that the FDA audits can be triggered by client, progress with their molecules within the development programmes that we are supporting them with and the FDA can also choose to audit us on other capabilities on an irregular basis so to speak. But, we have had two FDA audits in the last six months and we have cleared those two successfully with no 483s or major observations and that takes Syngene’s total of FDA inspections in the last two and half years to four. And again, in all four we have cleared them successfully. No 483s or no major observations and of course, we have multiple audits by other international agencies as well as our clients all the time and this underpins commitment and a level of achievement that we have in quality and compliance.Sonia: You did mention that you are planning to go ahead with capacity expansion and you have been doing that. What is the exact quantum that the company has outlined for Capex both this year and next year?A: The broad picture is that we have earmarked roughly USD 200 million of growth Capex investment over the next three and half to four years and that will be allocated to both our significant strategic extension into commercial manufacturing building on our existing base of pre-commercial manufacturing. Roughly half of that quantum would go towards this facility that we will establish in Mangalore over the next three to four years. So, USD 100 million will go to that. The remaining USD 100 million will be spread across multiple verticals in our business building capacities as I have described in many arenas and extending capabilities in many arenas. This year the growth Capex plan would be around USD 70 million and that will continue to roll forward into next year as well. As I said, as we continues both to extend capacities to meet growing demand and building new capabilities both to meet current demand and indeed to anticipate the future demand of new technologies that our clients and our partners wish to employ in their discovery and developments activity.